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  • The Federal Reserve increased rates by another 0.75% today.
  • Higher rates could further slow the economy, causing consumers to embrace lower-cost services and products.
  • A shift in consumer spending may benefit this low-cost gym operator, but it might hurt this beauty and skin care stock.

The Federal Reserve’s decision to raise interest rates by another 0.75% today wasn’t surprising because the CME’s FedWatch tool had been forecasting it for weeks. The real question is whether shifts in language that suggest the potential for smaller future increases, but a terminal rate that’s higher than previously hoped, are bullish or bearish.

Trading following the announcement was volatile, but that’s normal on Fed day. What matters is how institutional investors “vote” in the coming days. Will recession worries because of higher rates cause profit-taking over fear that earnings continue sliding, or will bargain hunters bid up shares under the assumption it’s only a matter of time before the Fed blinks and truly pivots policy?

The uncertainty makes watching how Treasuries and the U.S. Dollar trade as crucial as ever. For example, if bond yields fall, their relative attractiveness to equities could help propel stocks higher, or vice versa. Similarly, suppose the Dollar declines because of the assumption of a more dovish central bank relative to foreign banks next year. In that case, stocks may be able to find their footing because currency conversion could be less of a headwind in 2023.

Regardless, investors ought to freshen their watch lists with stocks to buy or sell. If Federal Reserve rate hikes slow the economy, focusing on low-cost services plays and avoiding companies marketing discretionary products at higher price points could pay off. 

Planet Fitness stock is a buy

When COVID lockdowns were at their peak, it was tough sledding for companies reliant on foot traffic, including Planet Fitness  (PLNT) . The franchiser and owner of gyms nationwide depends on a steady stream of healthy-minded customers, so the rise of interest in at-home fitness, entertainment, and e-commerce was a big drag on growth.

However, that was then, and this is now. Today, widespread immunizations have more people returning to their pre-COVID routines, including venturing out to local fitness centers. That's good for Planet Fitness' foot traffic and, potentially, member growth because of its low membership costs.

In “Planet Fitness Wants to Pump Up Your Portfolio's Returns,” Kamich, a technician evaluating charts since the 1970s, says Planet Fitness stock could be about to rally higher.

“In the weekly Japanese candlestick chart of PLNT, below, we see a picture that shows some subtle improvement. Prices are still in a longer-term downtrend and trade below the weak 40-week moving average line. There are some lower shadows in the past few weeks and this tells us that traders are rejecting the lows.

The weekly OBV line made a long decline to a September low. A slight improvement is now underway, I believe. The MACD oscillator is close to a cover shorts buy signal.”

CHART-Street-Smarts-JS-110222

On balance volume (OBV) is essentially a running total of up minus down day volume. Moving average convergence/divergence is a momentum indicator that subtracts the 26-day Exponential Moving Average (EMA) from the 12-day EMA. A bullish or bearish signal triggers when that result crosses over or below zero, or the 9-day EMA

How far could the green shoots that Kamich spies in the weekly charts propel Planet Fitness stock? Kamich calculates an upside target of $83 on the daily and weekly point-and-figure charts. If wrong, he recommends limiting the downside to $60.

A not-so-pretty picture for Estee Lauder’s Stock

If higher rates produce a weaker global economy, consumers nervous about their jobs could become less willing to indulge in higher-priced discretionary items, such as make-up and perfume. That wouldn’t be good for Estee Lauder Companies  (EL) , one of the most prominent skin care, makeup, and fragrance players.

Kamich’s review of Estee Lauder’s weekly price chart offers little conviction for those who might want to try bottom-fishing shares in the company. In “Estee Lauder Has Yet to Smooth Out the Bearish Wrinkles,” He writes:

“In this weekly Japanese candlestick chart of EL, below, we see a bearish picture. Prices have made a new low for the move down (not plotted). The slope of the 40-week moving average line is negative. The weekly OBV line is bearish, and so is the MACD oscillator.”

CHART-Street-Smarts-2-JS-110222

The daily chart isn’t any better. He says, “We can see a bearish setup. Prices are in a downward trend below the negatively sloped 50-day and 200-day moving averages lines. The trading volume has been increasing in recent weeks and tells me that traders are voting with their feet…The On-Balance-Volume (OBV) line is struggling. The Moving Average Convergence Divergence (MACD) oscillator is bearish and close to a new sell signal.”

How much more could Estee Lauder fall? The point-and-figure charts give Kamich a downside target of $169 on the daily chart and $95 on the weekly chart. That isn’t very encouraging, given Estee Lauder’s stock price is currently over $190.

The Smart Play

Estee Lauder Companies has already lost almost half its value since peaking last December, but despite that drop, selling pressure remains high. The company’s fiscal first quarter performance reported today did little to change that. Revenue slipped 11% year-over-year while EPS fell 24% from last year to $1.43. More concerning, however, is the company’s guidance. Persistent COVID lockdowns in China, higher costs, and a strong U.S. Dollar as headwinds could prevent a return to growth until the second half of its fiscal year.

The retreat in its shares did bring Estee Lauder’s forward price-to-earnings ratio down near 5-year lows, but consensus estimates may fall, given the outlook. Therefore, until China is ready to shift its COVID policy and the Dollar becomes less of a drag, staying on the sidelines until there are signs investors are warming up to the story again is smart.

If you’re interested in buying Planet Fitness stock, it reports its quarterly earnings results on November 8. If you want to avoid the binary risk of earnings day, consider buying only a partial position or waiting to hear what management says about franchisee same-store sales growth and trends at its corporate-owned store segment.

Last quarter, Planet Fitness shares fell following its earnings report, despite 64% and 81% year-over-year revenue and EPS growth, respectively. If the company guides to strong foot traffic at its stores and equipment demand from future new locations, there could be a character change this quarter, increasing conviction that shares will make a run toward Kamich’s target. 

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