October 2025 DDD

[ducati916]

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​ Before Monday's opening bell, the $38B cruise line giant, Carnival $CCL, beat its headline expectations, but suffered a -2 reaction score. The company posted revenues of $8.15B, versus the expected $8.10B, and earnings per share of $1.43, versus the expected $1.32. Now let's dive into the fundamentals and technicals

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​ CCL failed to rally on good news

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​ Carnival had a -4% post-earnings reaction, and here's what happened:

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​ The top and bottom lines reached new all-time highs, driven by multi-decade highs in return on invested capital. They are launching new loyalty programs and new destinations next year, which are expected to fuel future growth. The company outperformed its guidance across all key metrics, including net yields, cruise costs, EBITDA, and net income. Furthermore, the management team raised its forward guidance.

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​ We highlighted this setup in the latest Weekly Beat, anticipating a better-than-expected earnings report and a gap-n-go above the 2021 peak. While we nailed the headline numbers, we were dead wrong about the market reaction. This was a terrible earnings reaction on the heels of a beat / beat / raise. It doesn't get more bearish than that... The market is telling us loud and clear that this stock is not yet ready to enter a new uptrend and needs more time to consolidate. We still think the setup is constructive, as the price is a stone's throw away from resolving a textbook bearish-to-bullish reversal pattern. If and when CCL closes above 31, the path of least resistance will shift from sideways to higher for the foreseeable future. Until then, we expect the price to continue consolidating.

It’s been an intense past 96 hours for Electronic Arts Inc. (EA). On Friday, the company released the latest version of its soccer video game, EA Sports FC 26, formerly EA Sports Fifa. Then on Monday, it announced a deal to go private for $55 billion in the largest leveraged buyout on record.

The company explained that a consortium including Saudi Arabia’s Public Investment Fund, Silver Lake Management, and Affinity Partners will acquire 100% of EA (with PIF rolling over its existing 9.9% stake) for a 25% premium to the Friday opening share price. The buzz from recent game releases, including the iconic Madden NFL, added to gossip about the transaction to push up EA’s shares 15% on Friday:


This follows underwhelming buyout activity this year. Funds raised $192 billion in the first half compared to an average of $202 billion from 2022 to 2024, according to With Intelligence:


It’s also the clearest sign yet that the long-anticipated Trump 2.0 deal boom is beginning to take shape. PitchBook private-equity analyst Kyle Walters notes that the deal reflects a lifting of uncertainty, as investors gain clarity on tariffs and grow more confident that the Fed will ease:

It tells you where the risk appetite in the current environment is. Earlier this year, you would've never seen a deal like this take place, and now that I think a lot of sponsors have a better idea of what the market is going to look like, [in] a year or two.

Just as important, Walters says that the 25% premium suggests investors won’t be dissuaded by rising valuations.

The deal is a culmination of trends in the $178 billion gaming industry over the last half-decade. During the pandemic lockdowns, gaming surged in popularity. Playtime increased, and pop culture embraced the medium as film and television adaptations topped global charts. Studios poured money into ever more ambitious titles.

Now the surge has turned to glut. Faced with an oversupply of expensive new releases, players are increasingly sticking with old favorites. The result: disappointing sales, sweeping layoffs, and the closure of once-promising studios. Fortunately for EA, with four games among the industry’s top 10 sellers, they are a force to reckon with. Konvoy’s Jason Chapman told Bloomberg TV that the preference for old titles makes the EA transaction a game changer:

I look at this transaction by the PIF as a very intelligent move. EA has dominated the digital homes that we’re familiar with for years. And that’s what people want. They want innovation on things they’re slightly familiar with. Also [the company] will have the ability when going private to risk it and go for some new properties like a new “Battlefield.”

The deal is also a fresh landmark in Corporate America’s move away from public listings. Publicly traded studios, Chapman notes, often find the unforgiving quarterly cycle leaves little room for long-term bets on new titles. That helps explain why Microsoft acquired Blizzard, giving it space to innovate outside the public spotlight.

Meanwhile, Securities and Exchange Commission Chair Paul Atkins, writing in the Financial Times, said it was only a matter of time before public companies were freed from mandatory quarterly disclosures. As Points of Return mentioned here, the idea espoused by President Donald Trump is far from terrible. Atkins said the commission should let markets determine the cadence of reporting:

Mandatory quarterly reporting is hardly a cornerstone of the dynamism that distinguishes our capital markets. Giving companies the option to report semi-annually is not a retreat from transparency. Instead, it puts a renewed focus on market-driven disclosure practices that favor the interests of companies and their investors.

It’s still unclear whether loosening reporting requirements will ultimately benefit American companies. But when firms like EA decide being public isn’t worth the hassle, it’s a sign that something needs to be done.

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Big deals at generous multiples often indicate market tops. TimeWarner’s sale to AOL marked the top of the dot-com bubble in 2000; Blackstone, the private equity group, went public in the summer of 2007 just as the credit market was about to implode. Glencore, the massive commodities group, listed in May 2011, just as metals peaked and plunged into a bear market. Electronic Arts may yet join the list. For now, it adds to reasons for concern about valuation. The S&P 500 bottomed after the Global Financial Crisis at the scary number of 666; it has now topped 6,666: Such milestones affect nothing and should have no psychological impact, but they do. On more foundational grounds, the most widely watched long-term stock metric is the CAPE (cyclically adjusted price/earnings)multiple, popularized by the Yale University economist Robert Shiller. It compares the S&P 500’s price to the average real earnings per share of the previous 10 years to cancel out cyclicality, and shows the market almost back to its brief high in early 2022, and higher than on the eve of the 1929 Great Crash. Shiller presents the CAPE jointly with the 10-year bond yield; at the peak in 2022, rock-bottom yields supported stocks. No longer: Source: Shillerdata.com Another metric, espoused by Alan Greenspan when he chaired the Federal Reserve, compares the earnings yield (the inverse of the p/e ratio) with the 10-year yield. For two decades, stocks yielded more than bonds, making asset allocation easy. There Was No Alternative to stocks. Now there is. The 10-year is yielding more: So with valuations near records and bonds no longer providing support, what defense can there be? DataTrek Research’s Nicholas Colas makes the CAPE look a little less alarming. The 10-year figure Shiller uses is arbitrary; economic cycles tend not to last exactly a decade. In the last five years, thanks to post-pandemic recovery and the rush to equip for artificial intelligence, earnings have leapt, as Colas illustrates with this chart from FactSet. While 10-year average earnings are $166.75, the last five years have averaged $231.68: Over history, it tends to make little difference whether CAPE is based on five- or 10-year averages. At present, however, the five-year version makes the market look cheaper, well below the last peak in 2022: However, the two series tend to diverge when approaching a peak, and much depends on whether the AI-fueled earnings of the last five years are sustainable. Since 2020, earnings per share have doubled, which is very unusual unless starting from a base when they had fallen. Such growth might be sustainable, but probably isn’t. The chart does show why it’s worth using the CAPE to even out variations over the cycle: Another argument against a bubble comes from conventional one-year numbers. When speculation has taken hold, multiples rise. But forward-earnings ratios for the S&P are roughly where they’ve been for the last five years. For the Magnificent Seven, they’ve actually declined: These are forward multiples. If it turns out that the earnings expectations on which they’re based have risen too far, then they’re consistent with a big selloff. But if growth continues, and multiples do rise a bit, then John Higgins of Capital Economics suggests that EPS of $331 at a multiple of about 25 could bring the S&P to 8,750 by the end of next year. That’s not his prediction, but it’s a reasonable upside risk. Colas of DataTrek admits: “Yes, we entirely understand that this reads like bull market rationalizing of bubble-like valuations, but the underlying analysis is still useful.” He also accepts that if the S&P’s “structural earnings power” is really in line with the 10-year average, then “the CAPE ratio’s current dot-com-like readings are an entirely valid sell signal.” But, if the trend of the last five years can be continued, then the S&P has to rise another 9% before the CAPE even catches up with its average for the last 10 years. “This is the cornerstone of the bull case for stocks,” says Colas, “and we believe it is a strong foundation.” Therein lies the key. It’s not clear that there’s a bubble in share prices, although they’re certainly not cheap. There might well be a bubble in the amount people are prepared to spend on AI, in the earnings that the Magnificents make on the back of that, and in projected earnings for the future. That is where trouble could arise.

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As of the time of publication, 24 hours remain to avert a US government shutdown. At this point, it looks very likely to happen, as neither side appears to be making any effort to avert it. A closure evidently wouldn’t be good news — but the market isn’t scared at present, and that’s probably right. There have been 21 shutdowns in the last half-century, but most were over within a day or two and had minimal economic effects. Longer ones under Presidents Barack Obama and Bill Clinton didn’t derail the bull markets of the time — or their administrations. The most recent and longest shutdown, under Trump in 2018 and 2019, gives little steer as it coincided with the first great “Powell Pivot” when the Federal Reserve shifted sharply in a dovish direction. Thus stocks rallied strongly during the 34 days the government was closed. A lengthy impasse might hurt more this time. The market starts more expensive, and already expects a lenient Fed. If the government follows the advice in a memo from the Office of Management and Budget recommending that non-essential workers be terminated rather than furloughed as usually happens, that could generate alarm. But this isn’t a debt ceiling fight where a deliberate default is on the agenda, and the greatest concern for now is that economic data might be delayed.

• Pot stocks lit up today, with the Amplify Alternative Harvest ETF ($MJ) surging +26.7%, logging its best day since August, when it saw a similar-sized +27% rally. It's now sitting just -4% below a 52-week high, closing at its highest since November.
  
  
• As Conrad points out, today's surge occurred on the heaviest volume in more than a year. The primary trend remains lower, but $MJ is firmly above a rising 20-day moving average, and the 200-day moving average has curled higher since August.
  
  
• Pot stocks remain unloved after years of dismal performance and head-fakes. Yet, the group is exhibiting relative strength with $MJ up +46%YTD, while the broader Health Care sector ($XLV) is down -1.2%.

The Takeaway: Pot stocks exploded higher today, with $MJ gaining +27% on heavy volume. While the group is still broadly out of favor, the trend is stabilizing as $MJ pushes toward new 52-week highs.




“Big bull markets always find a way to keep you frightened and OUT. Big bull markets are devils with no conscience - to get in you have to ‘close your eyes, and just do it’. Not easy, but in this business, nothing is easy except losing money."

- Richard Russell

US Bonds​

• Treasury market implied volatility at multi-year lows ($MOVE).
• US 10yr Note
  $TNX
  +20 bps since Fed rate cut on 9/17.
• US credit spreads are historically tight. Confidence or complacency?
• Bond fund flows remain strong, especially relative to equities.
• Oct FOMC target rate probability remains virtually unchanged since Sept meeting i.e. it's very likely we see 25bp cut.
• Dec FOMC target rate probability softened over the last week. To 64% from 78%.
• US
  $AGG
  26-week rolling correlation to US Stocks
  $SPY
  at -0.40. Bonds are adding diversification benefit.

US Stocks​

• The smaller the better in September! Microcaps
  $IWC
  +17% QTD, compared to +12% for smallcaps
  $IWM
  and +7.4% for largecaps
  $SPY
  .
• US market successfully bucked the seasonal trend.
• Fund flows are picking back up, but inst. positioning remains light.
• Sentiment is mixed - "What goes up, must come down... right?!"
• $VIX
  below 20, low vol regime.
• Valuations are rich +
  $SPX
  10% away from the 200-day average.
• Stocks remain sensitive to rate uncertainty.

Non-US Stocks​

• US Dollar Index
  $DXY
  positive QTD. Expect more mean reversion in Q4.
• Developed Europe sending mixed signals.
• Japan continues to trend and China is breaking out.
• EM equity outperforming QTD despite higher
  $DXY
  .

Commodities & Crypto​

• Crude oil in a downtrend - weighing on index return.
• Precious metals go parabolic.
  $GOLD
  
  $SILVER
• Agriculture struggles on a relative basis
  $DBA
  
  $DBC
• Crypto remains in an uptrend.
• Alt-coins take a breather - megacaps outperform in Sept.

• We were told stocks would sell off in August and September.
• Equity indexes all over the world ripped higher.
• That's the signal.

There's an old saying on Wall Street that you want to "sell Rosh Hashanah" and "buy Yom Kippur."

It comes from the tendency for stocks to sell off during the period between the two holidays. Since 1970, the S&P 500 has fallen an average of 0.4% during this period, dropping 57% of the time.

But rather than focusing on the selling part of the equation during Rosh Hashana, I'm here to talk about buying during Yom Kippur, which is this Wednesday night-Thursday morning.

As my friend Jeff Hirsch points out in "The Stock Trader's Almanac", the S&P 500 rallies 70% of the time from Yom Kippur to Passover, with an average return of 6.4% and a median return of 7.7%.

"Buy in October and Get Yourself Sober"​

Jeff Hirsch is a man of many great quotes. He's the Yogi Berra of Technical Analysis.

His old saying, "Buy in October and get yourself sober," has helped me over many years, particularly in more recent years when the market has really ripped in Q4.

This quote is based on the tendency for stocks to bottom out around October and rip into the fourth quarter.

In fact, according to our friends over at Carson Group, the fourth quarter is by far the best for stocks – with positive returns 80% of the time and an average gain of 4.2% going back all the way to 1950.



October has a reputation for being volatile, as many of the market's greatest crashes have happened during the month.

Believe it or not, the first half of October is actually the third-best half month of the year, with a median return of 1.3%.

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This chart from Neil Sethi shows the average performance since 1950 for all 24 halves of each month throughout the year:



This week, we enter one of the most bullish periods in the calendar.

Historically, we want to buy stocks on Yom Kippur – that's this Wednesday and Thursday.

The fourth quarter of the year is historically the best quarter – that starts tomorrow.

The third-best two-week period of the year starts this week.

And, most importantly, the market has blatantly ignored the seasonal weakness we've historically seen during August and September.

This is probably the most bullish part of it all.

Ignoring Seasonal Weakness​

Those of you who have been following me for years already know we don't want to buy or sell stocks ahead of seasonally strong or weak periods just because history says that's the higher probability.

It's actually the exact opposite. We want to observe after the fact to see if stocks respected or ignored seasonal trends.

In other words, did stocks sell off during what is historically a bull period? Or did stocks rally during what was supposed to be a weak period?

That's the signal.

And that's what we just saw during what is historically the worst two-month period of the year.

Here's a chart showing performance for various sector and index funds since August 1:



We were told stocks were going to sell off in August and September. But the S&P 500 and the Dow Jones Industrial Average each rallied more than 5%.

The Nasdaq-100 was up more than 6%, and the Russell 2000 was up double-digits.

Meanwhile, Asia was up 13%, Africa was up 15%, and Latin America led the way, rising almost 16% during this period.

Stocks ripped when they weren't supposed to.

That's the signal.

Buy Yom Kippur.

Speculative growth is back in the driver’s seat with the flagship ARK fund kicking off the week with fresh cycle highs on both absolute and relative terms. We’ve been leaning back into this theme since early September, and this is just the latest piece of evidence that suggests we should keep pressing it. Crypto stocks have delivered big gains and continue to. Space and new nuclear names are heating back up. And quantum is the best basket of momentum out there right now. This is the same kind of environment where I find myself pulling up my drone watchlist more and more. We highlighted a handful of setups from this group of stocks back in July, just as they started to catch a bid. That was a false start, but after coiling up for a few more months, this group is taking off now. Here’s our Custom Drone Index breaking out of a textbook continuation pattern.

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This is exactly the sequence we look for in speculative growth: explosive rallies, digestion through volatility compression, and then clean resolutions higher in the direction of the primary trend. That’s all characteristic of a healthy recharge, not trend exhaustion. We believe drones are among the top places to be in speculative growth, yet these stocks are receiving zero attention The leaders are perfectly actionable right now, so I think it’s worth reiterating two of our favorites. First, this is Unusual Machines $UMAC:

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UMAC is following through on a VWAP pinch pattern, with volatility compressed but curling higher off multi-month lows. I’m long above 13, targeting 20. Over longer timeframes, I’m looking for 32. Next is Red Cat Holdings $RCAT:

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RCAT is pressing against the upper bounds of an almost year-long base. The stock has tested its pivot highs multiple times over the past few weeks but has been unable to break through. I think it gets the job done any day now. I like buying strength above 11.75, with a target of 18.75. Over longer timeframes, our objective is 30. We’ve had tremendous success trading options in speculative growth stocks this year, and we think the current setups in RCAT and UMAC have outlier profit potential. We’re long calls in both these stocks, and I like the way we’re looking with plenty of time to go until expiration. And while we’ve already taken profits in some, both of these positions are currently trading slightly below what we initially paid for them. In other words, the calls are cheaper than they originally were, and the charts look better. I’ll be looking to add exposure in the coming days.

jog on
duc